EC120 Chapter Notes - Chapter 14: Marginal Revenue, Marginal Cost, Market Power

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Competitive market: a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. Another condition sometimes thought of would be that firms can freely enter or exit the market in the long run. Firms in a competitive market try to maximize profit. Average revenue: total revenue divided by the quantity sold, therefore average revenue equals the price of the good. Marginal revenue= change in total revenue/ additional unit sold: for competitive markets the marginal revenue equals the price of the good. Profit maximization and the competitive firm"s supply curve. Marginal cost= change in total cost/ change in quantity. Change in profit= marginal revenue- marginal cost. As long as marginal revenue exceeds marginal cost, increasing the quantity produced raises profit. The marginal cost curve and the firm"s supply decision. Cost curves: marginal cost curve is upward sloping, the average total cost is.

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Suppose Wendy's Coffee Factory produces and sells in a perfectly competitive market. At Wendy's current level of production, she is producing the profit-maximizing level of coffee. At this quantity the average total cost of a pound of coffee is $5 and marginal revenue is $7. Given this information, what will be the long run equilibrium price of a pound of Wendy's coffee?

A) Greater than $7 (B) $7 (C) Between $5 and $7 (D) $5 (E) Less than $5.

Therefore, which of the following is not true for a firm in perfect competition?

A) Marginal revenue equals the change in total revenue from selling one more unit. (B) Profit equals total revenue minus total cost.

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raspberrycrow658

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

In a perfectly competitive market, the process of entry and exit will end when firms face:

A. Accounting profits equal to zero

B. Marginal revenue equal to long-run average total cost

C. Average revenue greater than marginal cost

D. Total revenue equal to average total cost

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EC120 Chapter Notes - Chapter 14: Marginal Revenue, Marginal Cost, Market Power

EC120 Full Course Notes

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